Organisational Structure of a

Business
Why Do Businesses Need to
be Organised?
 Small businesses (particularly sole traders) have an informal
organisational structure
 As a business gets bigger then it starts to form some kind of
organisation
 An organisation structure is required as soon as there are
several people working in the business
 The structure determines:
 Who is responsible for what job and

 Who is responsible to whom.

Hierarchy
 Describes management structure of business
 From top of company – managing director,
through to shop floor worker
 Usually best understood by drawing an
organisation chart
 Shows which levels of management and
employees report to whom
Example of a Hierarchy
Span of Control
 What is the Span of Control?
 The number of people who report to one manager in a
hierarchy
 The more people under the control of one manager - the
wider the span of control
 Less means a narrower span of control
 Example below shows a span of control of 4 for the
Marketing Manager

Marketing
Manager

Customer
Marketing Market Telesales
Care
Assistant Researcher Supervisor
Assistant
Advantage of a Narrow Span
of Control
 Allows a manager to:
 Communicate quickly with employees under them
 Control employees more easily
 Feedback of ideas from workers more
effective
 Requires a higher level of management skill
Advantage of a Wide Span of
Control
 There are less layers of management to pass
a message through
 So the message reaches more employees
faster
 It costs less money to run a wider span of
control because a business does not need to
employ as many managers
Tall and Flat Organisations
 Tall organisation
 Large number of managers

 Narrow spans of control

 Can suffer from having too many managers (expensive)

 Decisions can take a long time to reach bottom of hierarchy

 Can provide good opportunities for promotion

 Manager does not have to spend so much time managing staff

 Flat organisation
 Few managers

 Wide span of control

Centralised Organisations
 What are they?
 Organisations where important decisions are taken at the top and
then passed out to the various departments / locations
 Advantages
 Tight control of decisions
 Decisions made by senior management
 Helps decisions to be consistent across the business
 Avoids repetition of functions (e.g. only one purchasing department)
 Disadvantages
 Lack of motivation for managers
 Central management may be “out of touch”
 May be slow to make decisions that need to taken quickly
De-Centralised Organisations
 What are they?
 Organisations where important decisions are delegated to managers in
other departments / locations
 Advantages
 Increased motivation of managers

 Encourages local initiatives

 Decisions based on more up-to-date information

 Decisions made quicker

 Disadvantages
 Managers may lack experience

 Local decisions may be inconsistent with the overall business aims and
objectives
 Duplication of functions and costs
Chain of Command
 Line on which orders and decisions are
passed down
 From top of hierarchy to bottom Managing
Director
Production
Director
Production
Manager
Factory
Supervisor

Machine
Operators
Importance of Effective
Delegation
 Delegation is giving authority for certain
decisions to those below manager
 Gives manager more time to work on other
aspects of business
 Also plays an important part in increasing job
satisfaction and motivation of employees